Energy Policy:

How will Congress proceed on natural gas and climate issues? During today's OnPoint, Jack Gerard, president and CEO of the American Petroleum Institute, discusses his recent testimony on liquefied natural gas exports before the Senate Energy and Natural Resources Committee. He talks about Secretary of State John Kerry's impact on the future of the Keystone XL project and also the likelihood of floor action on the Sanders-Boxer climate bill.

Transcript

Monica Trauzzi: Hello, and welcome to OnPoint. I'm Monica Trauzzi. Joining me today is Jack Gerard, president and CEO of the American Petroleum Institute. Jack, it's great to have you back on the show.

Jack Gerard: It's great to be on the show, Monica. Thank you for having me.

Monica Trauzzi: Jack, you recently testified before the Senate Energy and Natural Resources Committee on the issue of LNG exports, and Chairman Wyden has said that the key to that issue is to sort of find a sweet spot that benefits both manufacturers and producers. What would you say is the sweet spot?

Jack Gerard: Well, I would suggest, as I told Chairman Wyden and other members of the committee, we have found a sweet spot to date, and the reason we found that is because the market drove us to the sweet spot, and that is low prices for natural gas, vast resources of natural gas, with the opportunity to literally have both. And what I mean by that is create American jobs in the manufacturing sector, while also being allowed to export LNG. We have such a vast supply, the amount we're talking about for export is the equivalent of about our, of our increase of production over the past two years. So it's a very small amount compared to the global marketplace. In fact, if we don't move quickly, we will lose that global marketplace to other competitors. There are others that are already in that marketplace. The amount that's open and available for additional exports is relatively small, and if we as government, or as government begins to slow down and stymie our ability to export, we'll lose those markets to somebody else around the world.

Monica Trauzzi: But what if prices don't stay low? How does that change the dynamic then?

Jack Gerard: Well, the fundamental laws of supply and demand's what's brought the price down today. We should never forget that gas was at about $14.00 just 3 or 4 years ago. Today, it hovers around $3.00. And the reason it does is because the breakthroughs in technology in the production of oil and specifically natural gas here in the U.S. Today, our resource is expected or projected to be 150 to 200 years. Now that's up over to 20 to 30 years just a half dozen years ago. So it's significant that we have this vast resource, and we shouldn't get the government in to now try to manage the price. The reason it's gone to $3 is because the market drove it there. For government now to intervene and try to manage that price will discourage further production by limiting demand and where we might send that vast resource.

Monica Trauzzi: Many of the members of the ENR panel are being cautious on this issue. Is that overblown, or does it make sense to move slowly on this?

Jack Gerard: Well, I think they're asking legitimate questions, because some have raised issues we believe are not well-founded. For example, some that testified suggest that somehow it's going to dramatically increase the price of natural gas. All of the studies out there, all the independent analysis, show that's not true. In fact, most conclude it would increase at most two to ten percent. So it's a minimal impact. But most importantly, we need to change our mindset in the country. We've operated for many years with a mindset of scarcity, that we have limited resource. Just a few years ago, we were talking about importing natural gas to the United States. Oh, what a difference a few years have made. So now we need to understand, we have a vast, abundant resource, so we shouldn't restrict the demand opportunities, the new market opportunities, merely because our mindset hasn't caught up with energy reality, specifically, that surrounding natural gas.

Monica Trauzzi: Chairman Wyden in a recent interview told me that he's not sure that there will need to be a legislative fix on this. Do you think legislation will be needed?

Jack Gerard: Well, today, the law has a presumption in favor of export. In fact, if you're looking to export to those countries that we have free trade agreements with, the law says you shall issue that export license or opportunity because it's presumed that is in the public interest. The only real issue and question here is the public interest as it relates to non-free trade agreement countries, and even there, the law has a presumption that says it's in the public interest. So the current law acknowledges any time we can export a product, that's good for the country. It helps in our balance of payment, creates jobs here at home, and generates billions of dollars in revenue to our federal, state, local governments. So we can have it both ways. There's no reason for the government to now intervene and try to put on price controls indirectly by managing export markets.

Monica Trauzzi: Let's talk about Keystone for a moment. When I spoke with Nebraska Congressman Lee Terry after the State of the Union Address, he said, based off of what the President said on energy, that he thought the Keystone Pipeline was doomed. What was your assessment of the lack of a mention of Keystone in the State of the Union, and sort of what that means for the bigger picture?

Jack Gerard: Well, we are still hopeful that the president will approve the Keystone XL pipeline, and we're doing everything we can to continue to educate and to remind people how important this is to our energy equation. As you know, there was some concern expressed in the state of Nebraska. They've now gone back and rerouted the pipeline. They've addressed those concerns. The governor has signed off. The state Legislature signed off. They've now sent it to Washington for a decision. The only decision before the president, is this in the national interest? That's the only thing the President has to decide. I know of no one that would suggest it isn't in our national interest. So we're hopeful the President will move quickly. We understand they're likely to release their report in the next few weeks, and make it open for public comment. But clearly, 20,000 jobs created, and the great benefit to our economy from bringing additional energy supply puts downward pressure on prices, puts our people to work. As Canadian Prime Minister Harper said, this is a no brainer. It shouldn't be hard for us. We're hopeful the President does the right thing, representing the 69 percent of registered voters in the United States who just last week confirmed through a poll they support approval of the Keystone XL pipeline.

Monica Trauzzi: Secretary of State John Kerry, who has a say here, hasn't said much about the pipeline, but he has been a strong supporter of action on climate change. How will that dynamic affect the final decision?

Jack Gerard: Well, once again, we're hopeful it's based on science and fact. If they base it on science and facts, as Prime Minister Harper says, it'll be a no brainer. If we allow politics to be interjected in this, if we start making decisions beyond what the law requires merely because they have authority to do so, then I'm not sure where it'll come out. But right now, I'll predict they will approve it, and we're hopeful they'll do it quickly, because it's clearly in the national interest.

Monica Trauzzi: Senators Boxer and Sanders have just released a climate package. Do you think there's a chance that this gets all the way to the floor, and what kind of debate would you anticipate if it does get to the floor? I mean, we're a few years removed from the last time we saw a debate like this.

Jack Gerard: I think no, it will not get to the floor, and I think the reason it won't get to the floor is the dynamics surrounding carbon has changed. The global warming issue has changed dramatically, and largely due to what we do in our industry, by producing clean burning natural gas. Today, carbon emissions in the United States are at 1992 levels. The United States has done more than anybody else around the world to reduce their carbon emissions, and that is due largely to the increased use of clean burning natural gas. So once again, back to your earlier questions, we need to take this vast, clean burning supply we have and produce more of it, not less of it by restricting exports. It will not only benefit us from creating tax payers and tax dollars, job creation, but there are environmental benefits to it, and we see it already in carbon emissions. So I don't think there's going to be a serious legislative discussion around climate. I think there'll be a lot of people keep talking about it, but I don't think it's a serious proposal, because the reality has changed, and natural gas is driving that change.

Monica Trauzzi: All right, Jack. Always good to have you on the show. We'll end it there.

Jack Gerard: Good to be on the show. Thank you.

Monica Trauzzi: Thanks for watching. We'll see you back here tomorrow.